Access Still Tops Cables Legislative Agenda

12/03/2000 7:00 PM Eastern

By: JOE ESTRELLA and LINDA HAUGSTED

Open access remains top-of-mind for cable operators as the industry prepares for the 2001 legislative season.

Some had hoped the issue was settled earlier this year, when the 9th U.S. Circuit Court of Appeals shot down Portland, Ore.'s bid to force AT&T Broadband to furnish rival Internet-service providers with access to its high-speed cable network.

After a year in which state associations invested time, money and political capital to shooting down open-access legislation, some may have thought they'd seen the last of the controversy. But that's not likely.

The issue remains alive in the 4th U.S. Circuit Court of Appeals, where AT&T is trying to beat back another attempt to impose "forced" access, this time by Henrico County, Va. And some state lawmakers are also looking into ways to remove obstacles to measures that would force incumbent cable operators to unbundle their networks.

The access question won't be the only issue on the table when state lawmakers reconvene next month. The industry will also be grappling with tax relief, theft-of-service issues, telephony deregulation, pole-attachment rates, the right access to multi-dwelling units and proposed tax credits for competitors that deploy high-speed infrastructure.

But the access question still remains to be settled.

And although most of the industry will wait for a ruling in the Henrico County case, Minnesota operators won't be able to be so patient when that state's Legislature gets back to work.

MINN. SHOWDOWN

Gov. Jesse Ventura is expected to try to revive legislation that would place cable operators who offer voice or data service under the same regulations as telcos or Internet-service providers. That would require the MSOs to reach interconnection agreements with other service providers-the equivalent of open access.

"We're going to take exception to anything in that proposal that would create an open-access situation," vowed Minnesota Cable Telecommunications Association executive director Mike Martin.

Ventura's proposal-which attempts to shift oversight of cable franchises from local authorities to the state Public Utilities Commission-could make unlikely allies of LFAs and incumbent cable operators. LFAs are certain to oppose that move.

However, cable executives worry that local governments will persuade lawmakers to leave some municipal authority intact, resulting in dual regulation, Martin said.

Wisconsin operators also expect another access fight this year, prompted by a group called the Open Access Forum, said Tom Hansen, executive director of the Wisconsin Cable Communications Association.

Access supporters already include the Wisconsin State Telephone Association-which represents some 99 small telephone companies in the state-and ISPs such as NorthNet, which has anex partefiling before the Federal Communications Commission concerning the America Online Inc.-Time Warner Inc. merger.

NorthNet has been lobbying hard to get other ISPs to come out against the terms the merging America Online Inc. and Time Warner Inc. have reportedly proposed for access to Time Warner Cable's high-speed platform.

Time Warner is seeking 75 percent of the revenues that ISPs generate from use of its platform, as well as 25 percent of all cable-network generated advertising revenues and electronic-commerce proceeds.

NorthNet director of marketing Stephen Heins recently told an ISP industry meeting that open access is a vital issue in Wisconsin, since statistics now show that 97 percent of high-speed connections there are via cable.

"They are a formidable group of people," Hansen said of the pro-access faction.

Though other associations believe state legislators have ceded the issue to federal authorities for resolution, they said they'll maintain their vigilance. It's obvious that access proponents have won the begrudging respect of some cable representatives for their "all-guns-blazing" style.

"It was an extremely educational exercise," said Bill Durand, executive vice president and chief counsel of the New England Cable Telecommunications Association. "We had good PowerPoint presentations, but the other side had much better sound bites."

Those "bites" seemed to make an impact on regulators who are more attuned to legislating water or taxicab rates, he noted.

The access issue could rise again in Maryland unless the FCC moves quickly, said Wayne O'Dell, president of the Cable Telecommunications Association of Maryland, Delaware and Washington D.C.

Texas heads into the upcoming legislative season in "defensive mode," waiting for a report from an interim study committee charged with examining access questions raised by the state's local exchange carriers and ISPs, said Texas Cable Telecommunications Association president Bill Arnold.

"They were all active in it before, so there's no reason to believe that they won't continue to be," Arnold said.

Virginia lawmakers will take up the access debate when they begin a 45-day session next month. A bill to force the state's cable operators to unbundle their networks died in subcommittee last year.

But the measure-backed by high-profile sponsors like regional Bell operating company Verizon Communications-is expected to surface again, according to Kathryn Falk, president of the Virginia Cable Association.

"They [Verizon] are still at it," Falk said. "And we're still fighting that case."

MDU FIGHT IN VA.

Most associations, however, hope 2001 is a year in which they can get back to basics.

In Virginia, for example, debate is raging over the terms that landlords can demand of cable operators in exchange for access to their multiple-dwelling units.

"We're not yelling, 'You have to let us in,'" Falk said. "We just want a fair and reasonable arrangement that isn't a

demand for extortion money up front. If every apartment building can demand $20,000 or $30,000, you're talking about tremendous pressure on rates."

In Florida, many will be watching how a presumably "simplified communications tax" plays out. It's so simplified, it's taken two years to work out the details, said Steve Wilkerson, president of the Florida Cable Telecommunications Association.

The bill was intended to combine various state and local franchise fees, utility taxes and other levies in a manner that would be revenue-neutral to cities and counties. Although the measure wouldn't reduce telcom providers'tax burden, vendors would save money from simplified accounting and payment practices.

The tax was approved last year, but the state and local components must still be determined. If the parties are unable to agree on a collection structure, the entire bill could be struck down, Wilkerson said.

Further complicating the process is a legal challenge the city of Naples has filed in state court. Naples officials allege the bill impairs localities' ability enforce their cable contracts and changes terms and conditions that are already in place in local laws. The flat tax also violates the federal Cable Act, the suit claims.

"We expected challenges," said Wilkerson. "This is a major new direction in how taxes were formerly applied to different providers and services. It will be a major challenge to work with other telecommunications companies to pass it over the objections of dissident cities."

The evolution of the tax is under the scrutiny of the Cable Television Tax Professionals Institute and may be promoted elsewhere, if Florida can make the measure work.

Florida officials are also still working through issues related to a 1995 telecommunication reform bill. The state's intrastate toll rates remain the highest in the U.S. because of a tariff structure through which local calls are subsidized by high tolls.

Long distance providers are pushing for a tariff change, but independent local-exchange carriers will resist the measure unless the state can design toll rate relief that is revenue neutral to local providers.

OHIO WATCHES TAXES

Taxes will also be the focus in Ohio, where members of the Ohio Cable Telecommunications Association oppose a bid to offer tax credits to local exchange carriers that deploy high-speed infrastructure.

"Without any help from government, cable operators were deploying high-speed infrastructure," said OCTA executive vice president Ed Kozelek. "Tax credits sound like a noble idea, but the effect can be to put a competitor at an advantage. That would give us pause."

Indiana's upcoming 90-day legislative session will be a contentious one, as lawmakers squabble over the state's biannual budget. In the midst of that battle, cable operators will try and revive uniform franchising legislation that failed to pass the Senate Commerce Committee a few years back.

But operators will also be worried about taxes. Indiana lawmakers are scrambling to replace revenues lost from a state Supreme Court-mandated property-tax reduction.

"Who knows what they're going to be looking at," said Dottie Hancock, executive director of the Indiana Cable Telecommunications Association.

Iowa operators hope to reap the benefits of a compromise hammered out with the Iowa Association of Municipal Utilities in 1999. That law requires municipal overbuilders to meet the same obligations and pay the same fees as private-sector incumbents.

"We don't care how the cities want to handle it, as long as they have the same franchise," said Tom Graves, executive director of the Iowa Cable Telecommunications Association.

This year, all eyes will be on Spencer, Iowa, where the local government is locked in a legal battle with incumbent operator Mediacom Communications Corp. The MSO sued Spencer Municipal Utilities, alleging its new telecom network was operating without a franchise comparable to that of the incumbent.

Mediacom also claims the $16 million project was illegally funded through a combination of interfund transfers and bonds issued by Spencer's municipal electrical utility.

While not busy on those fronts, Graves said the ICTA will be watching the General Assembly, where Qwest Communications International Inc. will seek authorization to enter the short-haul long distance market.

Not so fast, said Graves, whose membership includes AT&T, a likely player in the local telephony business.

"Once [Qwest] opens up its market to competition, we'll let them do whatever they want," he said.

Tennessee's upcoming legislative session could bring action on pole attachment and inside wiring. A joint House and Senate telecom committee is studying those topics.

"What happens will depend on what the committee recommends," said Tennessee Cable Telecommunications Association executive director Stacey Burks. "But it's a top priority."

As a preventive measure, operators may also push to ensure that state franchising laws contain language requiring open video system operators to adhere to the same rules as incumbents. Digital Access Inc., a start-up that is targeting the Nashville and Knoxville areas, entered the market as an OVS operator.

For some, next year's focus will shift from the legislature to the regulatory arena.

In New Mexico, for example, cable operators will be monitoring the five-member Public Regulation Commission, which this year must develop a framework to implement massive telephone deregulation legislation.

New Mexico Cable Association executive director Ray Davenport expects the PRC's deliberations to be of particular interest to Comcast Corp. Through a series of deals, the No. 5 MSO will acquire the New Mexico assets of Adelphia Communications Corp. and AT&T Broadband, widening its footprint there to over 300,000 subscribers, or 70 percent of the market.

"I don't know that they're doing anything more than observing right now," Davenport said. "But based on their expected dominance in the state, I would think they'll eventually look at getting into telephony."

Drive down Interstate 25 a bit to Colorado and you'll find industry players wondering how long things will remain calm. The Colorado Cable Telecommunications Association is expecting Qwest to renew the annual call for deregulation made by its predecessor company, U S West.

The association's opposition to such legislation is not surprising. Denver is the headquarters of AT&T Broadband, and the No. 1 MSO is racing to complete a $200 million upgrade that will allow it to introduce cable telephony to the Front Range.

"We think there should be conditions attached to any such legislation," said CCTA executive director Pat Boyle. "We're concerned with things like consumer protection, competitors being obliged to use Qwest's network and interconnection."

Even though AT&T has already launched cable telephony in the Denver suburb of Aurora, plans for other areas remain "in their infancy."

"But when the time comes, we want to make sure that AT&T customers can connect with Qwest customers," Boyle said.

Elsewhere, the recent general election brought both grief and some relief to cable associations.

Relief was felt in West Virginia, where incumbent Gov. Cecil Underwood put business on notice that his platform included a dramatic reform of the state's underlying business-tax structure.

Operators felt his plan would stem expansion of telecommunications services, said Mark Polen, executive director of the state's cable association.

But on Nov. 7, Underwood lost to Democratic candidate Bob Wise. Now the association waits to see how new election-year appointments alter the makeup of the West Virginia Public Services Commission.

California operators were stymied in their Election Day efforts to curb cities' power to create new telecommunications levies. A statewide proposition would have reclassified the telecom fees as taxes, which are more difficult to implement under state law.

In 2001, the California Cable Television Association will closely monitor bills designed to close the so-called digital divide, privacy proposals that could restrict operators' marketing efforts and environmental initiatives.

System expansion and improvement efforts are increasingly facing environmental challenges. Localities have created additional right-of-way fees for street degradation, and, in one case, an overbuilder was forced to halt construction when Native Americans declared that the site of its proposed headend was an ancient Indian burial ground.

"There's no single place to get clearances" on these varying issues, noted Dennis Mangers, vice president, government affairs for the CCTA.

As cable expands into a broader array of services, more bills come up each year that either expressly or accidentally affect operators. In 2000, 50 California bills could have affected cable systems, but amendments sought by the industry neutralized the threats, Mangers said.

Right-of-way management also remains on the front burner in Arizona. In the last two years, negotiations between the state and telecommunications companies resulted in a ban on "fiber licenses." That's considered an impediment to expansion of cable's broadband infrastructure, said Susan Bitter-Smith, executive director of the Arizona Cable Telecommunications Association.

However, negotiations continue on the appropriate charge for damage compensation for the use of municipal rights-of-way. Cable operators and localities intend to meet each week before the Arizona Legislature convenes in January to negotiate a deal, she said.

The rights-of-way issue has also surfaced in New York, but with a twist. In New York City, the winning contractor on utility projects currently has the ability to set the charges to other service providers located in involved trenches on a cost-plus basis. Cable and telephone companies have no venue in which to challenge the cost pass-throughs.

A bill to expand that mode of operation was launched last year by lobbyists for the state's contractors.

Cable operators, teaming with utility and telephone companies, killed the bill in the state Assembly after it had been approved in the Senate. The Cable Television and Telecommunications Association of New York anticipates the bill will be revived next year.

The New York State Senate is also researching ways to create a state public-affairs network. Legislative hearings were carried on cable 15 years ago, but the feed was never distributed beyond the state capital.

Operators note there are questions to be answered about a statewide C-SPAN type venture, including funding sources, content control and the role of the Public Broadcasting System, which has expressed interest in carrying a legislative feed.

Channel capacity remains an issue for some New York operators, who would be troubled by the creation of a new must-carry channel.